Income distribution can be analyzed from macro economic and micro economic points of view. An observation from a macro economic point of view shows a declining trend of labor share of value-added in the manufacturing sector over the last 20 years in Indonesia. This declining trend has been created by mainly surplus labor in the agricultural sector, labor saving technology in the manufacturing sector, and increasing wage rates in Indonesian economy. To turn around this trend of income distribution in Indonesian economy, Indonesian economy has to firstly reduce surplus labor in the agricultural sector either by improving agricultural labor productivity or by shifting agricultural labor forces to the non-agricultural sectors. An economy can increase labor share of value-added only after passing a turning point from a labor surplus to a labor shortage economy. A declining trend of labor share in Indonesian economy can be observed from a social accounting matrix (SAM), too. Based on SAM ana
… Morelysis, a real percapita consumption level declined from Rp204,000 in 1995 to Rp157,000 in 1998 and to Rp150,000 mainly due to price increase during the economic crisis. As a result, population below the poverty line increased temporarily.Indonesian household social and economic survey can be used for analysis from a micro economic point of view. It shows that two third of households below the poverty lines are located in rural areas. Household consumption levels are mainly related to land holding situations, educational levels of household head, and family size, but not closely related to occupation, gender and age of household heads. In addition, marginal consumption expenditure with respect to a year of addition education is approximately 5 percent and the figure is almost same regardless of household heads' occupation. Marginal rate of return with respect to a year of addition education is very high and education is a very effective measure to reduce poverty in the long run. But, in reality, the educational levels of children from the low income households are likely to be low and then the characteristics of poor households will be passed over to the next generation. In the short run, the poverty will be alleviated by improving productivity of rural small enterprises and then expanding employment opportunity in rural areas. It is also important to make landless farmers to own land for reducing poverty in rural areas. Less